La Trobe Business School

Month: January 2016

By Buly Cardak

Imagine you run a business where your product is so hot it doesn’t even touch the store shelves. It flies out the door faster than you can ship it to the retailer. What a great problem to have. This is the problem facing Bellamy’s Organic, Tasmanian based maker of Bellamy’s Organic Infant Formula. Their infant formula is in such great demand in Australia and overseas that they cannot keep up. How does a business respond to these circumstances?

Bellamy’s is watching its product fly out the door. Lots of this product is finding its way overseas to China. Chances are it’s being onsold at a large markup, with profit going to middlepersons, rather than Bellamy’s and its shareholders. This is a classic example of excess demand for the product. There are clearly people who are willing to pay more than the current supermarket price for the product. In introductory economics courses taught around the world, the concepts of demand and supply are used to illustrate who benefits from a transaction. There is consumer surplus and producer surplus. Somewhere in the recent past, Bellamy’s Organic Infant Formula became so hot that the demand for the product increased dramatically. Bellamy’s thinks there’s a lot of consumer surplus in this product at current prices. Their response is to increase the market price. They are punting that even at a new higher price, everything they’ve got to sell is going to continue to fly off the shelves. In raising price they are hoping to turn some consumer surplus into producer surplus, increasing their own profits.

It’s a fine line they have to tread. Infant formula would be a sensitive product to try to increase prices and profits on, it’s easy to criticise. But it’s a far cry from profiteering, where for example, suppliers raise the price of petrol or bottled water after a natural disaster like a hurricane or flood. Under Australia’s Competition and Consumer Act 2010, businesses are free to set prices for their products as they choose, as long as they do not collude and fix prices. They cannot impose minimum prices on resellers, nor can they sell at below cost in order to harm competitors, known as predatory pricing. This is where Coles comes in. Once the baby formula is delivered to them, they are free to choose the price they sell it at, just like Bellamy’s determines the price they sell it to Coles for. It is not public what the profit margins on this product are and I am not aware of how the supermarket price has evolved over the past year. But just like Bellamy’s, Coles would have an incentive to raise prices too. We can think of at least two reasons they might not have raised price. First, competition between supermarkets might be so strong that if they do raise price, they might lose a lot of business. Given the shortages, I suspect this is not the case. The second is that they were afraid of a public relations disaster. Raising the price of baby formula is not a good look, it’s trying to turn a bigger profit off consumers who cannot fend for themselves, babies.

According to a story in The Age (“Coles strategy to shame suppliers”, 19 December 2015), Coles has turned the tables on Bellamy’s, making it very clear that they are simply passing on price rises from the manufacturer. In doing so, they are putting pressure back on the producer and have turned consumer advocate. A clever public relations move given they were penalised $10 million by the ACCC for their dealings with suppliers in the past.

What about the babies? In a market based economy stuff is allocated by price, to those that can pay. Infant formula is no different. Higher prices mean people will look for a substitute. Whether it’s the local or international consumers who need to substitute, only time will tell. The massive demand for the trusted Australian product will entice more producers into the market. On 30 November 2015, Bellamy’s announced a strategic manufacturing arrangement with Fonterra Australia to ramp up production, showing that in this case market forces do work, though production is not a tap that can simply be turned on when demand increases. These things will take time. In the meantime, desperate parents will struggle to get their hands on their favoured organic infant formula and people will call for restrictions on per customer sales and on overseas trade of the product. The good news is babies grow up and won’t be drinking formula for ever, their parents’ woes will be a distant memory, eventually.

Recently, Sports Management specialist and La Trobe Business School Professor of Practice Catherine Ordway, was featured on the ABC Radio news speaking about the decision of the Court of Arbitration for Sport on the Essendon supplements case.

By Catherine Ordway

I am not surprised by the Court of Arbitration for Sport’s finding of anti-doping rule violations by the Essendon Football Club players. It’s the right decision and I am pleased the panel found the evidence supports the claim made by ASADA that the players had been injected with a prohibited substance.

The 34 current and former Essendon players, whether innocent or not depending on your perspective, were found to have been injected with the banned peptide Thymosin Beta-4. They have been suspended until November 2016 after a tumultuous three years of intense scrutiny.

The outstanding takeaway from the CAS decision for the players and the board members of the Essendon Football Club is this: Ask more questions.

Players accepted what they were told by their coaches and trainers and ignored warning signs: Why wasn’t the club doctor involved? Why were they being taken to an off-site location? Where was the documented individual player injection programs? Why weren’t there medical files for each player? What were they being injected with on each occasion? Was it approved for human consumption? How were the performance improvements being measured?

As ASADA CEO Ben McDevitt said: “At best, the players did not ask the questions, or the people, they should have. At worst, they were complicit in a culture of secrecy and concealment.”

The starting point under the World Anti-Doping Code is that all athletes take full responsibility for any substance ingested into their body. Despite the players receiving anti-doping education, and the supplements program not being administered by the club doctor Bruce Reid – he was excluded from the program – players took the word of Stephen Dank, employed as a sports scientist by Essendon.

If the players believed what they were being told about the program being WADA compliant, why didn’t they declare the injections on the ASADA doping control forms as required? Is it because they didn’t know, and didn’t want to know, what they were being injected with?

The players were told by Stephen Dank the program complied with the WADA code. PIcture: Shutterstock

The players were lied to about what they were being injected with, and told by Dank the program complied with the WADA code. In this way, players can be said to be innocent victims up to a point, but they should have done more to seek advice beyond the narrow confines of the club. Dank’s behaviour throughout did not satisfy any professional standards.

Beyond requirements for athlete support personnel under the WADA Code, conduct of this kind in any other industry would attract jail time.

While players should have asked more questions, fault for this scandal lies much further up the line: multiple governance failings and weaknesses created this perfect storm. The governance within the club has been described as appalling; with major structural and accountability deficiencies identified.

To a large extent, these issues have now been resolved and the recommendations outlined in Dr Ziggy Switkowki’s 2013 report followed. Dr Reid admits that he could have done much more to prevent the program, although he did try to have it stopped; an instruction which was ignored.

Former Essendon coach James Hird. Picture; Michael Dodge/Getty Images

Another crucial factor to be considered is the team environment versus athletes competing in individual sports. Although all the players were over 18, senior players and people with “god-like” charisma, such as that ascribed to Essendon head coach James Hird, can have an enormous influence in a team setting. This was not explored by the CAS panel.

I wonder whether this presents a research opportunity: comparing the influence a long-term, one-on-one coaching relationship has on a young, impressionable individual athlete verses the pressures within a team environment, and whether these are factors the CAS panel should have taken into account.

From here, there are two ways the 34 players can explore further legal options. First, lawyers for the players could appeal the CAS finding to the Swiss Federal Tribunal. This, however, I suspect is unlikely. The CAS decision thoroughly sets out why the panel felt they were “comfortably satisfied” with the evidence presented. The “comfortable satisfaction” standard of proof sits somewhere between the criminal standard of beyond reasonable doubt and the civil standard of the balance of probabilities.

The second approach is for players to lodge civil action against the Essendon Football Club for a breach of the club’s duty of care toward them, and citing a loss of reputation, current and/or future earnings and potential damage to players’ future mental and physical health. As the products have not been approved for human consumption, we have no idea what the injections’ impact could be, with the possibility they may lead to heart conditions, fertility issues, susceptibility to various cancers or impacts on their unborn children.

The CAS finding that the players were injected with an unapproved substance will undoubtedly now be used against the club in expensive civil proceedings.

At a time when there have been numerous failings around governance in sport internationally — including a raft of reports that have given international federations responsible for football, cricket, cycling and athletics a shake-up — the Essendon case is important. The CAS ruling makes it clear athletes need to do more and take more responsibility for their own health and wellbeing, even in a team environment. Players and officials cannot rely entirely on information they are given within the club. Players must do their own independent research and ask more questions.

Catherine Ordway is a Professor of Practice in La Trobe Business School, specialising in sport management. She has more than 20 years experience in the Sports Industry and continues to provide consultancy services to Olympic bidding cities, government agencies and sporting organisations on integrity and anti-doping issues. Catherine is a member of the SportAccord (GAISF), IBAF (baseball), ICC and West Indies (cricket) anti-doping tribunals, and is the IAAF (athletics) medical and anti-doping delegate for Australia.

On 18 January 2016, La Trobe Business School economics researcher Dr Buly Cardak was quoted in The Age article ‘University offers benefit wealthy and realistic students’.

In the article, A/Professor Cardak comments on his recent research findings showing that wealthier school leavers with a realistic worldview and ongoing forms of support access higher education at greater rates compared with students from disadvantaged backgrounds.

Dr Cardak is a specialist in the economics of education, and has been researching factors influencing students’ university studies since early 2006. Read the full article on The Age’s website.

Every year, La Trobe Business School students organize events for their ‘Event Project’ capstone subject, as an assessment. We spoke to Elspeth Frew and Jessica Derham, – who coordinate and teach in the Event Management degree, – about this year’s events, student’s experiences and how the subjects helps students crucial event management skills.

You teach in the event management degree. Can you tell us something more about the course, and what students have to organise as part of their assessment?

The degree is a three year business degree, including four core subjects, eight event-related subjects, a number of electives, and industry experience like work placements or volunteering. There is also an opportunity for students to go on exchange after their first year, or take part in international field trips.

All students study a major in Event Management which includes the capstone subject Event Project. In the third year of the Event Management degree, students have the opportunity to conceptualise, plan, operate and evaluate a fund raising event where all proceeds are donated to either the Cancer Council of Victoria (for Bundoora students) or the OTIS Foundation (for Bendigo students). This subject has generated in excess of $100,000 in donations to these charities over 10 years. Each month students are encouraged to engage in event volunteering activities to allow them to gain valuable event related experience and to reinforce the importance of volunteers for the operation and survival of important community events. The uniqueness of this assessment places students in a real world environment, with the same challenges event planners deal with on a daily basis. For example, they need to consider sponsorship opportunities, organising all the logistical event, managing a budget, balancing the needs of several stakeholders and working in a team. All are very important skills to learn, which are developing our graduates into future event leaders. This has been demonstrated with one of the previous leaders in the subject, Kate Taylor, who went on to work for Cancer Council Victoria as the Events Team Coordinator. Her role included overseeing Australia’s Biggest Morning Tea and the Girls’ Night In events.

What are some of the most original events students have come up with over the years?

Over the years, students have organised events that ranged from movie nights and art sales to yoga events and clothing swaps. There are approximately 18-20 students involved in running different events, each has a team leader and organises an event of their own devising.

This year, five student groups have been asked to each organise something. The first event was a movie night and took place on the 21st of October. The night included free samples from Pancake Parlour and a photo booth, as well as a speech from a Cancer Council representative who spoke about the benefits to any donation received.

The event was very well attended, and students raised more than $1800 for Cancer Council!

La Trobe Business School works with a number of organisations for this course. What are some of the partnering institutions LBS has worked with? And how long for?

We have strong ties with government and industry in Melbourne’s north and in the Bendigo area established via our field visits, guest speakers and internship programs. These internships provide our students with the opportunity to work in the T,H&E sector for 100 hours per semester with private businesses, local councils and not for profit organisations.

The Tourism, Hospitality and Events discipline has had partnerships with the following institutions over the last few years:

How do you think this hands-on assessment helps students gain the skills they need to go out into the workforce later on?

The T,H&E degrees contains vocational types of assessment such as reports, presentations, press releases and strategic plans to ensure students have experience of these workplace practices before graduation. In several T,H&E subjects, career aspects have been embedded into the curriculum such as applying for a fictional T,H&E job and responding to key selection criteria. In third year students attend a Careers Seminar lead by the University Careers and Employability Service where they are provided with guidance on how to make a smooth transition to the workforce. Students are also invited to attend a farewell event in the last week of second semester, where they are encouraged to become members of the Alumni of La Trobe.

When asking students how they felt about the subject, the response are overwhelmingly positive. In the words of a student: “For me, the highlight of the subject was the practical, real-world experience. You can read a text book and try to apply the theory but the ups and downs, the challenges such as time management, task delegation, team communication and actually having to trust and rely on others, that was what made my experience pure and real.” She noted that the subject bares a hefty work load and requires a lot of time and dedication, but she was happy once she completed the subject. “We didn’t want to give up and now we feel we have really achieved something.”

La Trobe Business School is looking forward to the 2016 edition of these events!

Kate Doughty is an Australian elite athlete, motivational speaker, mentor and registered psychologist. Kate represented Australia at several international equestrian events, including the World Equestrian Games. She has recently been collaborating with La Trobe Business School students to support several charity events benefiting organisations like Cancer Council Victoria.

Less than 12 months ago, Kate made the dramatic change to Triathlon. Kate is now positioned 3rd in the ITU World Para-Triathlon rankings. In the following interview, Kate reflects on her outstanding career and also has some words of advice for Business Students.

When did you get involved in professional horse riding?

I always loved horses. My mother used to ride horses as a young child and retired from the sport when she moved up to the city to pursue her career in the stock market in her early 20’s. My father is also been involved in the industry, but from a horse racing perspective so it was in my blood. I always had a dream of representing my country at the Paralympics, so for me (being born with out a right hand) if I wanted to attempt this in the equestrian sport of dressage, it meant I had to figure out how to hold the reins. To ride at the highest level and to compete for my country, I had to learn how to ride with 4 reins. This was years of trial and error as a child, however I was selected to represent Aus at an International level in 2006, and successfully competed at this level up to and including the World Equestrian Games, in the USA in 2010, before I retired.

You recently made a dramatic change to triathlon. What inspired you to switch directions professionally?

Less than 12 months ago, I made the dramatic change to triathlon. This was an ambition born from personal loss, with the death of my mother spurring me to make a fresh start within a new sport. Unexpectedly, the results of this transition have been astonishing as I am now positioned 3rd in the ITU World Para-Triathlon rankings. I never lost sight of one day representing my country at the Paralympics, however it just happens to be in a sport I would have never believed possible… I now firmly have my eyes set on winning Gold at RIO, 2016.

What are your Triathlon plans for the coming year?

After winning Bronze at my first World Championships in October this year, all training is focused on selection for RIO Paralympics. I am almost there, however I need to win or podium at the following races early 2016 (no pressure!): Nationals (QLD) in January, Oceania Championships (Tas) in February, and two international races to be held in Aus in April. This will solidify my spot on the team and ultimately allow me to live my dream of competing at the Paralympics.

One of your current projects is your new skincare line, Nx2, focussing on a natural line of products and ingredients. What inspired to you start this project?

Nx2 is born from a very special and memorable part of my life. My mother, who was my mentor and best friend, taught my many interesting things about wholefoods and super-foods, which we are now seeing everywhere… my mother became one of the first accredited ‘raw’ food chefs in Australia, however sadly was unable to live her dream of opening a café and wholefoods store after loosing her battle with breast cancer in 2010. Sharing my mother’s passion for health, organic food, and awareness of protecting the body from the harsh realities of everyday living, I soon became aware that it is not only what we put IN our body, but also what we put ON our body that matters. Our largest organ in our body is our skin. By acting as an interface between the outside world and our internal bodies, the skin plays a very active part in protecting our internal world. Nx2 utilises the benefits of natural ingredients by supplying nurturing skin products. Nx2 products assist with the optimal functioning of your skin against external influences, as well as penetrating the skin to nurture your body internally. From Nature, to nurture, made with love.

How did you get involved with the La Trobe Business School Students and what compelled you to help them?

I have been a university student for many years, and I know what it is like when it comes to needing support and assistance. I was more than happy to help out after a friend who is associated with La Trobe approached me.

How do you think management students, and managers in general, can integrate the values you advocate in the nx2 line (an emphasis on natural ingredients and personal health) in their daily lives? Do you think this is something they should keep in mind when organising events and finding suppliers etc?

Just to keep in mind what your ‘take home message’ is. Make sure that you get involved with events and suppliers that inspire you, that you are passionate about, and that you are keen to become an advocate for. I also believe inspiration; passion and advocacy should fuel our activities and choices we make daily.

Have you got any advice for Business School students, to overcome academic and personal challenges?

Do what makes you happy. Always set goals. Life will bring challenges, but if you do what you love, and have goals to strive for, you will get there. Don’t hurry life, and be open to opportunities, especially when you least expect them.